How Brexit could affect British expats living in the EU

In our recent survey, two thirds of British expats said that they would vote to remain in the EU, with many also expressing their concern about what Brexit would potentially mean for them.

While most UK citizens are focussing on how they will be affected by either remaining or leaving, the outcome for the 1.5m expats living in the EU may not be in their own hands.

But what could Brexit mean for expats, and why should people in the UK care?

Lack of planning creates uncertainty

The negatives (and positives) around the UK leaving the EU are as broad as they are long. Nobody really knows what will happen in the event of a Brexit vote. It could be amazing, it could be diabolical, it’s likely to be somewhere in between.

The primary reasons for this are that it’s never happened before (you cannot compare countries who have never been an EU member with a country which has left) and there are no plans created by the UK Government to clearly explain what would happen if Britain was the leave the EU.

Therefore, the vote to leave is a risk averse, leap of faith that the Government (remember this country is led by the remain campaigners) will immediately be able to take the best course of action for the UK as a whole (expats included). We do not even know if Cameron will be PM if the UK leaves the EU, there have even been suggestions of an early General Election. All of these basic factors should already be part of a public plan enabling people to make informed decisions.

But they aren’t.

With so little Government level planning, and ultimately so much uncertainty, it is impossible to predict what will happen. Therefore, it can only be prudent to consider the risks and decide whether they are risks worth taking against unknown levels of reward.

Migration

It is generally accepted that under the Treaty of Vienna that if Britain was to leave the EU British expats would not be required to apply for visas to remain in their country of residence.

For people living in the UK considering moving abroad, Brexit could make moving to another EU country more difficult and people may be required to prove that they are eligible to settle in another EU country.

If the Norway model is followed and Britain were to negotiate access to the single market, it is likely that freedom of movement for EU citizens would remain in place – and therefore current and future expats would be unaffected in their choice of where to live.

This is especially relevant for expats currently working in the EU who may be required to relocate to different offices.

If the Norway model is not followed, and individual negotiations with each country regarding migration commence, it is unclear whether free movement of EU nationals would be permitted. It is possible that countries may introduce rules surrounding residence status which make it more difficult or expensive for expats to remain. However, the extent of these rules will depend on how flexible the UK is during negotiations.

For example, expats who are of working age but without a job may be ineligible to claim benefits in their country of residence, or may face being sent home if they find themselves out of work – rather than being able to remain indefinitely, or until they found work elsewhere.

Potential financial impact

Currency

Currency is a great indicator of confidence in a country’s economy. The more risk and uncertainty that exists, the more a currency will weaken. Over the months preceding the EU Referendum GBP has devalued against each major currency on the publication of polls claiming Brexit to be ahead.

The predictions that GBP will be significantly devalued in the result of Brexit are highly likely to come true, due to the inevitable unknown throughout negotiation periods as Britain attempts to reconstruct 50% of its trade agreements.

The resulting decrease in value will mean that for people receiving an income in GBP, things will automatically be more expensive. This includes people working for UK companies while living abroad, retirees claiming pensions (State or otherwise) from the UK and also people receiving an income from renting property in the UK.

For expats in this situation, the level of devaluation will affect their ability to pay rent, mortgages, food, heating and healthcare. A good comparison is during the financial crash, GBP and EUR were on a par, and expats were faced with increasingly tough decisions about whether they could even afford to move back to the UK.

This will also affect expats living outside the Eurozone, where the cost of living may be even higher.

The devaluation will last until the uncertainty is resolved (trade agreements and economic stability) which is expected to take between two to ten years, at least. Alternatively, a major political or economic event which destabilises currencies around the world may result in GBP gaining strength. However, this is impossible to predict – and hope is never a good basis for a decision.

Our experts have looked in detail at the potential impact of exchange rate fluctuations due to the EU Referendum, which we would encourage people to read.

Ultimately, the impact currency will have if the UK left the EU must not be underestimated.

Tax

In the short term, little is likely to change with regards to tax and certainly nothing with change during renegotiations as tax treaties are negotiated on a country level, rather than with the EU directly.

However, in the event of Brexit, the tax treatment by the UK government of EU nationals living in the UK may impact the tax treatment of British expats living abroad, with some experts predicting that countries such as Spain and France may introduce new tax rules specifically aimed at British expats.

In the longer term, it is understood that George Osborne is keen to investigate a potential UK version of FATCA where British nationals are liable for tax in the UK, irrespective of their country of residence and any tax treaties which may apply. Whether this becomes more or less likely if the UK were to leave the EU is unknown.

Pensions

There is unlikely to be any impact on pension payments as a result of Brexit. The UK pension rules are governed solely by the UK. However, it is possible that the tax treatment of UK pensions may be vulnerable to further taxation at a local level as well as in the UK.

Property prices

It has been reported that a vote to leave could result in UK house prices falling, although the economic reasoning beyond currency fluctuations has yet to be proven.

One claim is that if EU citizens are forced to leave the UK, hundreds of thousands of properties would become available resulting in decreased prices. However, as it is highly unlikely any EU citizens would be forced to leave the UK, this house price drop is also highly unlikely.

It is also unlikely that UK house prices will significantly increase in value during the period following a vote to leave, due to potential market uncertainty and the threat of interest rate rises affecting mortgage applications.

Impact on healthcare

Under current rules, any citizens who carry a European Health Insurance Card are eligible for healthcare service which are free at the point of use.

This agreement is made as part of the EEC agreement, which is outside the jurisdiction of the EU. It means that foreign nationals from countries within the EEC living in the UK holding the card and using the NHS can also use the NHS free at the point of use – and the UK government then “invoices” the holder’s originating country to cover the cost of any treatment. The same applies for British expats living abroad and holding an EHIC.

If the UK were to leave the EU, this system would (in theory) be unaffected.

However, it would only remain unaffected if the UK was to remain in the EEC – which would also ensure free trade with Europe continues and would also mean the rules around freedom of movement of people would also remain.

Therefore, it is unclear whether this system would remain applicable for foreign nationals living in the UK, or British expats living in the EU and such agreements will be decided in a post “leave” negotiation.

If agreements are not reached, the key question will be whether expats in the UK and British expats in Europe will be able to claim free healthcare going forward, and any decision is likely to lead to retaliatory action.

It is highly likely that expats will be required to pay for any treatment, or at least have private medical insurance to cover any costs. This will be especially true if the UK Government continues to privatise the NHS in the coming years.

Impact on voting rights

Before the 2015 UK General Election, the Conservatives promised to remove the 15-year rule which excludes expats who have lived outside the UK for more than 15 years to vote.

Whether the government follows through on this promise is unclear, however this will not be affected by a vote to leave or remain.

Why should people in the UK care about British expats in the event of Brexit?

Aside from their tax contributions to the UK, British expats should be considered important when considering how to vote in the referendum because of the potential for many expats to be repatriated to the UK.

There are currently an estimated 1.5m British expats living in the EU. Depending on the various negotiations, many expats may find that their expat life is unsustainable and may be pressured to return to the UK, most notably retired expats.

One of the major arguments for Brexit is “uncontrolled immigration of EU nationals into the UK”. Unless Britain was to agree to continued free movement of EU nationals, Britain may be powerless but to accept a large proportion of expats living in the EU who are forced to return home.

In this event, these would be most likely to be retirees or unemployed expats and therefore would be more likely to require the state to support them, beyond the current means.

Given that an estimated 90% of EU nationals living in the UK are in employment, this repatriation of British expats would be the equivalent of an influx of unemployed migrants entering the UK – one of the key factors that “Leavers” are campaigning against.

Summary

At the beginning of this article, we made it clear that there would be positives if the UK were to leave the EU: GBP could strengthen, healthcare services could remain intact, repatriation may not be required.

However, without the lack of a clear plan on what Brexit would look like, the risk/reward would require a massive leap of faith that everything would remain ok for British expats.

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